The Asian markets closed mostly higher and Europe is trading mostly lower.
The volume in the S&P last week was the lowest weekly volume since August 2006. Yep, get your mind around that. But the big thing we have learned in the new world trading order is that just because it’s a holiday or the end of the summer doesn’t mean the spoos won’t be moving. On occasion it will, but just when you think “it’s dead,” the S&P gets hit by some type of program. The other part you shouldn’t believe is that “they turn the machines off” when the volumes are low. That is a bunch of BS.
This morning is what we call a mixed bag. The Hang Seng and the Shanghai Composite closed sharply higher, while Europe is down with the S&P down sharply. It seems like whenever we get weakness early in the week the markets rally later in the week. That said, this week is the August expiration and according to the Ned Davis S&P cash study it should be an up expiration. Our view is to buy the open or the first 2- to 4-handle drop off the open. We may look to sell some rallies after that, but we want to see how the S&P acts first.
In the middle of June Bernanke sent yields to the highest level in two years when he outlined a plan to curtail the $85bil a month in bond purchases, and in the middle of July he said the purchases “are by no means on a preset course.” Yields on the notes have contracted 4.51 percentage points since the end of 2008; they are still 32 basis points higher than the average during the decade ended Dec. 31, 2006. And in the last few weeks the Fed taper talk has been somewhat muted. That won’t last forever…
As always, keep an eye on the 10-handle rule and please use stops when trading futures and options.
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